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For-profit health: some US hospitals mark up costs by 1,000%

Published
Tuesday 9 June 2015 Published Tue 9 Jun 2015

By Marie Ellis

The health care industry is a major market in which consumers are typically not able to comparison shop. A patient lying in a hospital bed, for example, has little choice in how much they spend on their care. Now, a new study examining hospital costs finds that the 50 hospitals in the US with the highest markup of prices are charging patients more than 10 times that allowed by Medicare.

Researchers say 50 hospitals with the highest price markups are charging patients more than 10 times that allowed by Medicare.

The study, led by Prof. Gerard F. Anderson - of the Johns Hopkins Bloomberg School of Public Health - and Ge Bai - of Washington & Lee University - is published in the June issue of Health Affairs.

They say their findings demonstrate how a lack of hospital charge regulation and market competition lead to increasing prices, which affect nearly all consumers - whether insured or uninsured.

Overall, the team discovered a markup of more than 1,000% for the same medical services covered by Medicare.

"There is no justification for these outrageous rates," says Prof. Anderson, "but no one tells hospitals they can't charge them. For the most part, there is no regulation of hospital rates and there are no market forces that force hospitals to lower their rates."

He adds that hospitals charge these rates "simply because they can."

For-profit hospitals 'better players in price-gouging game'

To conduct their study, the team examined the 2012 Medicare cost reports from the Centers for Medicare and Medicaid Services and came up with a charge-to-cost ratio, which indicates how much hospitals mark up charges beyond what Medicare covers.

They found that not only did the 50 hospitals charge, on average, 10 times the costs allowed by Medicare, but also the typical US hospital charges were around 3.4 times the Medicare-allowed costs in 2012.

For example, when a hospital has $100 of Medicare-allowed costs, it charges $340. And one of the top 50 hospitals in the study would charge $1,000. Of these 50 hospitals with the highest markups, the researchers say 49 are for-profit, and 46 are owned by for-profit health systems.

Specifically, Community Health Systems, Inc., a for-profit health system, operates 25 of these 50 hospitals. Meanwhile, Hospital Corporation of America operates more than 25% of them. Additionally, 20 of the 50 hospitals are located in Florida.

"For-profit hospitals appear to be better players in this price-gouging game," says Bai. "They represent only 30% of hospitals in the US but account for 98% of the 50 hospitals with highest markups."

What about the uninsured?

Patients with health insurance, however, do not typically pay the full price. Both government and private insurers negotiate lower rates for patients. While this is good news for the insured, it is a big problem for the uninsured.

The researchers say 30 million uninsured patients in the US are likely to be charged the full rate, in addition to patients receiving out-of-network care, workers' compensation or car insurance benefits.

This means that the most vulnerable population of patients - the uninsured - face the highest medical bills, which frequently results in bankruptcy, lowered credit scores or avoiding vital medical services.

"Except for patients with government insurance," says Bai, "few consumers are immune from negative financial impacts caused by hospitals' high markups." According to the team, the state sets rates that hospitals can charge for services in Maryland and West Virginia, but there is not a federal law regulating prices for all Americans. Prof. Andreson adds:

"We as consumers are paying for this when hospitals charge 10 times what they should. What other industry can you think of that marks up the price of their product by 1,000% and remains in business?"

He adds that unless state or federal officials legislate a maximum allowable markup, hospitals are unlikely to drop their charges to levels closer to Medicare-allowed costs. Price transparency could help, he says, since patients are unable to bargain or comparison shop when sick.

Typically, hospitals are not required to share publicly how much they charge for various procedures. "This system has the effect of charging the highest prices to the most vulnerable patients and those with the least market power," Prof. Anderson says. "The result is a market failure."

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